How a Reverse Mortgage Can Help Seniors with Healthcare Costs

By Darren Moffatt

September 11, 2023


interest rate reverse mortgage

It’s an undeniable fact that healthcare costs in Australia have been escalating over the years. 

According to a 2023 report from the Australian Seniors, the average yearly out-of-pocket expenses towards health for individuals aged 60 and over is around $1,586. This estimate translates to approx $14.18 billion Australia-wide. For many seniors, these healthcare costs can constitute a significant portion of their annual expenses.

As we grow older, it’s natural for our bodies to require more care. From routine check-ups to long-term treatments, medical costs can quickly accumulate. According to a 2021 report from Australian Institute of Health and Welfare, most older Australians (80%) are living with at least one chronic condition such as heart disease, diabetes, or arthritis. These chronic illnesses often lead to additional financial burden, beyond the cost of standard medical care.

Regrettably, the reality is that many of us underestimate these expenses, which can lead to financial stress when health complications occur. 

A National Seniors Australia study found that 68% of seniors expressed concern about covering their future healthcare costs. This is where a financial tool such as a Reverse Mortgage can provide some relief.

In simple terms, a Reverse Mortgage is a loan that allows homeowners to borrow against the value of their home, repaying it only when they sell the house, pass away, or move out. This untapped home equity can potentially be a strategy for managing healthcare expenses.

However, it’s crucial to proceed with caution. Understanding all the intricacies of a Reverse Mortgage, from its benefits to possible downsides, is paramount.

In this blog post, Seniors First explores the escalating cost of chronic conditions in retirement, expected medical expenses for seniors, the financial burden of chronic illness, and the role of Reverse Mortgages in managing these costs. 

Managing Chronic Health Conditions Can Be Costly 

The cost of managing chronic diseases is substantial. It includes not only direct medical costs like hospital care, physician services, and medications but also indirect costs such as loss of productivity and informal caregiving. 

For seniors, these costs can quickly deplete retirement savings and put significant financial strain on them and their families.

Take heart disease, for instance, a leading cause of hospitalisation and death among seniors in Australia. The cost associated with heart disease is enormous – in 2018-19, cardiovascular diseases cost the Australian healthcare system over $14.0 billion.

Similarly, managing diabetes, which affects about 15% of Australians over 65, involves ongoing costs for medications, monitoring supplies, and routine check-ups. In 2018-19, diabetes accounted for $1.9 billion in hospital care alone.

As the number of seniors with chronic conditions continues to rise, so does the financial burden on these individuals and the healthcare system at large. 

Therefore, it is increasingly crucial for seniors to have a robust financial plan that takes into account the potential costs associated with managing chronic diseases during their retirement years.

Managing Chronic Health Conditions and Reverse Mortgages 

A Reverse Mortgage loan allows homeowners aged 60 and over to borrow money against the value of their home. The loan, along with the interest and fees, are repaid when the homeowner sells the home, moves out, or passes away. One of the key benefits of a Reverse Mortgage is that the homeowner can continue to live in their home while having access to additional funds.

So, how can a Reverse Mortgage help manage chronic conditions? Here are the top reasons: 

  • A Reverse Mortgage can provide the necessary funds to cover ongoing medical expenses. This includes medication costs, hospital bills, doctor’s fees, and even the cost of medical equipment. It can be a lifeline when out-of-pocket expenses are higher than anticipated.
  • A Reverse Mortgage can help pay for home modifications that might be required due to a chronic condition. This can include installing grab rails, wheelchair ramps, or modifying bathrooms for accessibility. These modifications can be costly, but they can significantly improve a senior’s quality of life.
  • If a senior requires home care or assistance due to a chronic condition, a Reverse Mortgage can help cover these costs. This allows seniors to receive care in the comfort of their own home, which can be less disruptive and more comfortable for them.

It’s important to note that while a Reverse Mortgage can be a helpful tool, it’s not the right solution for everyone. You also need to consider the drawbacks of using Reverse Mortgage to pay for healthcare costs: 

  • Since a Reverse Mortgage is essentially a loan that uses your home as collateral, the amount of equity you have in your home decreases over time as you receive payments. This could leave fewer assets for you or your heirs when the home is eventually sold.
  • Depending on the circumstances, the income received from a Reverse Mortgage could affect eligibility for certain government benefits, including pensions. It’s crucial to seek advice on this before deciding on a Reverse Mortgage.
  • To maintain a Reverse Mortgage, the borrower must live in the home as their primary residence. If you have a chronic condition that might require moving into assisted living or a nursing home for a year or more, the loan would become due, potentially creating a financial burden.

Before deciding, seniors should consider all options and seek advice from a trusted financial advisor. This will ensure they make the best decision based on their personal circumstances and long-term healthcare needs.

Alternatives to Reverse Mortgages

Although Reverse Mortgages can be a great tool to cover healthcare costs in retirement, they’re not the only option. There are other ways you can fund your healthcare needs in your golden years.

One option is health insurance. If you’re not yet retired, you may consider buying more comprehensive health insurance that can cover a wider range of medical services and treatments. This could potentially save you a lot of money down the line. But remember, premiums can be high, and not all health conditions and treatments may be covered.

Another option is savings. You could start a dedicated savings fund for healthcare costs. It may seem tough to put away money every month, but it can help lessen financial stress when healthcare needs arise.

Selling assets is another option. This could be selling a second car, downsizing your home, or even selling other investments like stocks or bonds.

Each of these options has its own pros and cons. Health insurance, for example, can give you peace of mind, but it can be costly and may not cover everything. Saving money seems straightforward, but it requires discipline and time, and you might not save enough to cover all your costs. Selling assets can provide a lump sum of money, but it might mean giving up things you need or enjoy.

When you compare these to a Reverse Mortgage, you need to think about what works best for you. A Reverse Mortgage can provide a steady stream of income without needing to sell your home. However, it can impact the value of your estate and might have high fees.

In the end, it’s about balancing your needs and resources. Remember to consider all your options. Talk to a financial advisor who can help you understand what’s best for you. It’s important to make an informed decision so you can enjoy your retirement without worrying about healthcare costs.

Always Seek Professional Advice

Navigating the world of Reverse Mortgages can feel like a daunting task. That’s where professional advice comes in. A Reverse Mortgage broker can play a crucial role in this process. They can help you understand the ins and outs of Reverse Mortgages and determine if this is the right path for you.

At Seniors First, we have a team of experienced Reverse Mortgage brokers who specialise in helping seniors, like you, make informed financial decisions. We can explain the details of a Reverse Mortgage, discuss whether it’s a suitable option for you, and guide you through the entire process.

Choosing the right Reverse Mortgage is essential. Here are some tips:

  • Make sure you’re clear on the costs involved, including interest rates, fees, and any charges. This will help you determine the overall financial impact of the Reverse Mortgage.
  • Make sure you read and understand the loan terms. Know when the loan needs to be repaid and what happens if you move or sell your home.
  • Consider your future needs, including long-term care and how it will be funded. A Reverse Mortgage might affect your ability to pay for these needs.
  • Before signing anything, it’s a good idea to speak with a financial advisor or a lawyer. They can provide independent advice based on your personal circumstances.

At Seniors First, we can guide you through these considerations. We’re committed to providing honest and straightforward advice. Our goal is to help you make the best decision for your retirement and healthcare needs.

Call us on 1300 745 745 or CLICK HERE to check your eligibility.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before you make any decision.


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